Tuesday, 1 October 2013

In some of the most encouraging news seen in the industry for a long time - certainly in terms of its upbeat nature and assertive stance - the Construction Products Association’s latest State of Trade Survey indicates that sales of construction products continued to strengthen during the third quarter of 2013 and optimism is high for the coming months too. This news comes fresh after recent figures released by the Office for National Statistics showed a 'dramatic increase' in construction new orders. Reasons to be cheerful, indeed!

The State of Trade survey shows that private housing and infrastructure were still the key drivers behind growth but building product manufacturers clearly signalled that the rise in sales was more widespread than in Q2. This news is exactly what we have been hearing at Pinnacle Consulting from many of our clients, and is one of the reasons why we have seen a 'dramatic increase' on the number of new construction sales jobs on our books in the last few weeks.

Construction Products Association economist, Milja Keijonen commented: "The third quarter of 2013 saw sales significantly rise across the board. Exports supported the growth but even the domestic market showed signs of recovery. Heavy side products, commonly utilised early in construction projects, recorded widespread growth in sales both on an annual basis and quarter-on-quarter. Sales of light side products such as fittings and services also increased strongly after a broadly flat Q2.

"Looking ahead, product manufacturers are increasingly optimistic about Q4 sales growth and most are expecting higher sales over the next 12 months. The wider economic outlook has steadily become more positive, which should support recovery in construction and demand for building products. We note that employment for product manufacturers is still flat, though sentiment is increasingly positive.

"Altogether, the results highlight the improving state of the market; however, concerns do remain about the sustainability of the recovery with most manufacturers reporting that domestic demand could prove to be a future constraint."

Other key points include:

Half of heavy side firms reported sales growth of over 5% quarter-on-quarter and year-on-year.

Trading conditions among light side producers improved significantly and around 60% of companies, on balance, experienced a rise in sales from a year ago and quarter-on-quarter.

Expectations suggest that conditions are set to improve further over the next three months with 67% of heavy and 66% of light side companies, on balance, expecting sales to rise in Q4.

Exports continued to boost sales in Q3 with 27% of light and 25% of heavy side firms reporting a rise in exports quarter-on-quarter, on balance.

Cost inflation was widespread across the industry with energy and transport costs driving higher unit costs.

All this comes on the back of recent data from the Office for National Statistics highlighting a dramatic increase in construction new orders during the second quarter of 2013. Overall, new orders in the four quarters to Q2 were 12.0% higher than a year earlier, worth £5 billion, with double-digit growth in almost every sector.

Commenting on the ONS figures, Dr Noble Francis, Economics Director at the Construction Products Association said; "Although construction output grew in the second quarter of 2013, this was purely driven by housing, which in turn has been boosted considerably by Help to Buy. However, the latest figures on new orders show that the £111 billion construction industry is ready to enjoy a sustained recovery over the next two years.

"A rise in house building has been augmented by increases in major infrastructure and a return to growth in schools and hospitals construction. Infrastructure new orders in the four quarters to Q2 were 19.8% higher than a year earlier and new orders for public non-housing, which primarily covers schools and hospitals, grew 12.6% over the same period."

"New orders in private commercial, the largest construction sector worth £21 billion each year, fell 4.9% in the four quarters to Q2. However, new orders in the second quarter were higher than in the previous quarter and appear to have passed the nadir, suggesting growth in private commercial medium-term.

"Overall, there are strong positive signs of a sustained recovery in construction output, not just in housing but also in private and public construction sectors. Our forecasts anticipate that construction output will grow 12.2% by 2016 as these new orders feed through into activity on the ground, providing an additional £11.8 billion for the industry and the wider economy."